Understanding FRAML: The Case for Combined AML and Fraud Prevention System

A trillion-dollar loss. That’s the scale of money stolen by fraudsters globally in the last year, according to the Global Anti-Scam Alliance (GASA). Even more alarming is that only 4% of the victims were able to get their funds back.

Where did the rest of the billions go? Has it been “cleaned”?

It’s an established fact that financial crime tactics have evolved. Shouldn’t the methods to catch criminals change, too? If you think so, then it’s time to say hi to FRAML – the framework that’s breaking down the outdated walls between fraud prevention and anti-money laundering.

If you’ve ever asked, “What is FRAML?” or wondered how it merges AML fraud detection with traditional fraud analytics, you’ve landed on the right page.

What is FRAML?

FRAML Meaning in Modern Compliance

The term FRAML is an acronym for fraud and anti-money laundering. In practice, it is used to refer to an integrated strategy to manage both the fraud and money laundering risks in financial institutions.

The FRAML represents a fundamental change to the previous approach, where fraud prevention and anti-money laundering strategies were developed and implemented separately.

The FRAML recognizes the inherent connection between these two types of financial crimes, where proceeds generated from fraud necessitate money laundering to obscure their origins.

FRAML Objective

The purpose is to unify resources, data, and technology employed to detect fraud and anti-money laundering to establish a more comprehensive and potent defense against financial crimes.

This integrated approach enables financial institutions to enhance their regulatory compliance, improve security measures, and fight various financial crimes, including money laundering, identity theft, and terrorist financing.

Difference between Fraud and Money Laundering

Before we go further, we need to understand that fraud and money laundering are two different types of financial crimes, however, the occurrence of one leads to the other.

Fraud is a deceitful act for personal gain in order to get unauthorized access to the rights, belongings, or property of another person.

Fraud may take various forms and shapes, e.g., embezzlement, phishing, spoofing, identity theft, impersonation, forgery, counterfeiting, etc.

Whereas on the other hand, money laundering involves concealing or hiding the connection or link between a criminal activity and the property or funds it generates. Money laundering usually involves a three-stage process known as placement, layering, and integration to convert illicit gains into legal ones.

While they may differ in nature, fraud and money laundering often intersect, for example, using stolen identities to open accounts for money laundering.

What’s Behind the Growing Adoption of FRAML?

Need For a Unified System for Detection

The desire for improved efficiency, streamlined operations, and cost reduction is one of the key drivers behind the growing adoption of FRAML.

As financial crimes are becoming more sophisticated, organizations are realizing that it’s inefficient and difficult to manage two separate systems for monitoring financial crimes.

Historically, fraud prevention has been part of security departments and primarily seen as an operational concern. On the other hand, AML efforts were usually part of compliance departments, primarily driven by regulatory obligations.

FRAML is the strategy that combines both systems for fraud and money laundering detection to give rise to a cohesive compliance approach.

Overlapping Patterns Between AML and Fraud

Criminals need to ‘clean’ illegal fraud money before they can freely use it without getting unwanted law enforcement attention. Combining both fraud and money laundering detection systems offers a clearer and more holistic view of these criminal activities.

This not only helps in detecting such criminal activities but also provides valuable insights for developing effective prevention strategies.

Growing Regulatory Emphasis

Regulators across the globe are encouraging financial institutions to take a collaborative and holistic approach to fighting financial crime.

Regulatory bodies such as the Financial Crimes Enforcement Network (FinCEN) have highlighted the importance of communication and collaboration between fraud prevention and AML divisions within financial institutions.

This regulatory encouragement reflects an understanding that a unified strategy is more effective in fighting various financial crimes.

What Are the Key Components Of the FRAML Strategy?

The strong FRAML framework requires several core components to streamline efforts of fraud and AML detection. Are you laying the groundwork for your firm’s FRAML strategy?

Then this is your recipe for an effective strategy, combining all necessary ingredients:

• Consolidated Data: Combine data from fraud prevention and AML systems to paint a more accurate and complete picture of customer behavior, transaction patterns, and potential risks.
• Collaborative Teams and Processes: Foster communication, cooperation, and shared workflow between fraud and AML teams by breaking down the outdated walls between the teams and processes.
• Unified Technology Platforms: Utilize and deploy systems with capabilities of both fraud analytics and AML detection software in a single platform. This helps eliminate inefficiencies associated with maintaining separate software.
• Holistic Risk Assessment: Develop a single risk assessment framework across both fraud and AML domains. This approach helps develop a more accurate and complete understanding of a firm’s exposure to financial crimes.
• Advanced Analytics and Technology: Use advanced technologies like Artificial Intelligence (AI) to remarkably enhance the detection capabilities of the system. Such technologies can analyze a vast array of data points in real-time, identifying suspicious behaviors and complex patterns indicative of illicit activity.

Integrated monitoring and Reporting: Utilize systems that can simultaneously monitor transactions and activities for AML fraud purposes. Additionally, reporting structures must also be aligned, e.g., detection of fraud transactions should directly support filing a suspicious activity report, if required, similar to AML.

Potential Benefits of Combining Fraud Prevention and AML Systems

Combining fraud and money laundering prevention efforts offers many key benefits to the financial institutions:

Increased fraud and money laundering detection

FRAML helps in enhancing the detection capabilities of financial institutions; for example, identification of an account opened with fraudulent or fake documents in a cross-trained or collaborative environment may lead to the detection of a complex money mule network involved in money laundering.

Streamlined investigations

Another key benefit of the FRAML approach is streamlined investigations. Without this holistic approach, two teams may potentially be investigating the same underlying activity, leading to inefficiencies, a delayed and fragmented response to financial crimes.

Cost Savings

This is one of the key drivers behind the adoption of a FRAML strategy. Cross-trained staff and shared software mean more efficient use of resources and reduction of costs required to maintain separate teams and detection software.

A study estimated that a mid-sized financial institution would save nearly $90,000 monthly by implementing an integrated fraud and AML system. Most of these cost savings were estimated to come from the elimination of duplicated work efforts and enhanced detection of new fraud risks.

Improved Data Use

Traditionally separate systems for fraud and AML may prevent analysts from viewing a complete picture of customer behavior and associated risks.

A single integrated view allows faster and more accurate decisions regarding the potential risks of financial crimes or money laundering activities.

Enhanced Regulatory Compliance

The adoption of an integrated strategy like FRAML to financial crime prevention improves regulatory compliance. Regulatory agencies, trade associations, and financial intelligence units recommend an integrated approach to financial crime, money laundering, and terror financing investigations.

FRAML Debate: Industry Experts Share Different Views

Although there are strong reasons to combine fraud detection with anti-money laundering (AML) procedures, many industry professionals believe this might pose serious operational difficulties.

In their view, it is more productive to manage these two disciplines independently, guaranteeing specialized attention and tactics that are specific to each.

To hear from the compliance experts, AML Watcher hosted a webinar, bringing together several esteemed experts to discuss the concept of FRAML (fraud and AML integration). The webinar offered diverse insights on the subject, highlighting the complexities involved.

Get a glimpse of it here:

Luke Jones says, Fraud detection and AML are undeniably linked, but they require distinct approaches. Fraud demands immediate action, while AML is focused on tracking illicit funds over an extended period.”

Kennedy MAA responds to that, “Exactly. The surge in fraud across social media platforms is deeply concerning. We must rethink our regulations. Social media companies need to take on a more active role in preventing these scams.”

“AI plays a pivotal role in both detecting and preventing fraud, but it’s a double-edged sword. Fraudsters are also leveraging AI, making it a continuous battle to stay ahead,” says Sanjay B.

Should Fraud and Money Laundering Be Managed Separately?

Fraud is a predicate offense of money laundering. Just because Anti Money Laundering laws are used to do the due diligence to detect the proceeds of crimes like human trafficking etc etc. The same laws can enforce fraud detection at least in Financial Institutions.
Please feel free to share your opinion about it.

And, if you want to gain a deeper understanding of these expert insights, be sure to watch our full webinar.

How AML Watcher Helps in Fraud Detection?

AML Watcher is engineered to support a cohesive FRAML strategy by integrating essential financial crime defenses (money laundering, terror financing, and corruption)  onto a single platform.

It combines robust screening against PEP lists, Sanctions, and Adverse Media with intelligent transaction monitoring, providing a unified view of customer risk.

The system aggregates critical data points – reputation intelligence, criminal background, fraud history, political influence, financial sanctions, and transactional patterns – from the entire customer lifecycle.

AML Watcher combines adverse media along with regulatory warnings and screenings to detect fraud risks and provide real-time compliance insights.

This allows AML Watcher’s enterprise case management (ECM) system to surface complex, interconnected risks, identifying suspicious activities potentially linked to either fraud or money laundering, thereby strengthening overall financial crime prevention and facilitating a truly integrated AML compliance approach.